ANCHOR INVESTORS INVEST FOR REASONS OTHER THAN THE FUNDAMENTALS.

By definition, the anchor investor, is a bridge between the company and the public in the run up to an Initial Public Offer. An anchor investment stake is a sizable investment made in a project, by a qualified, prominent investor. Normally reputable institutions are roped in to provide the initial investment- usually a sizable amount.

The presence of this investor /s gives other people the confidence to  join and invest.

Roping the anchor investor would ensure greater certainty and better price discovery in the issue process. If some informed investor is ready to come in with prior commitment, it enhances the issuer company’s ability to sell the issue and generate more confidence in the minds of other investors.

The anchor investors for PC Jewellers included - DB International (Asia) and Reliance Capital  DVI Fund Mauritius, Stichting Pensioenfonds ABP, Mirae Asset Global Investment, Goldman Sachs lndia Fund, HSBC Tax Saver Equity Fund, Birla Sunlife, Tata AIA Life Insurance.

V-Mart had roped in IDFC Premier Equity Fund and Morgan Stanley Mutual Fund.

Bharti Infratel had allotted shares to 18 anchor investors that included Sundaram MF, Columbia Acorn International, Wanger International, Riversource Variable Series Trust, Wellington Management Company, AllianceBerstein Global Thematic Growth Fund Inc, Morgan Stanley Mauritius Company Limited, Citigroup Global Markets Mauritius Private Limited, Morgan Stanley Investment Management, Clough Capital Partners LP, Commonwealth Equity Fund Limited and Route One Investment Company.

The stock market performance of the shares backed by anchor investors: 

	IPO PRICE	CMP	GAIN / LOSS (%)	FIRST CHOICE IPO RECOMMENDATIONS
PC JEWELERS	135	114	(-)15	AVOID
V-MART	210	177	(-)15	AVOID
BHARTI INFRATEL	220	183	(-)20	AVOID

Moral of the story - Most of the times anchor investors make investments for reasons other than the underlying fundamentals of the company. Do not blindly follow them. Make your own assessment.

COLLECTIVE WISDOM CAN BE DISASTROUS

J P Morgan, Barclays, Merrill Lynch,UBS, Deutsche Equities, Standard Chartered, HSBC, BNP Paribas, DBS are the big names in the world's investment banking.  In fact the first 5 figure in the world'd  top 10 investment banks of 2012. Enam Securities, Kotak Mahindra Capital, HDFC and ICICI are the local tigers.  When they collectively sit and take a  investment decision, that decision has to be a prudent one. Some investors thought so and made investments in the IPO shares of Bharti Infratel,the last IPO of 2012.  The IPO was priced at Rs 220. Its debut in the exchanges was disastrous. Within 3 months of its listing the shares are trading at Rs 183, down 20%.  We had advised the investors to stay away from the IPO inspite of big names associated with it and the IPO carrying highest grade. The issue carried grade 4 awarded by CRISIL.

Moral of the story - Investment / merchant bankers are always biased towards the issuer. For the simple reason of payment - The issuer pays their fees. There is a general tendency for a biased decision even if the issuer raises fees by minuscule percentage. Moral of the story -while investing in IPOs, do not buy the story told by the investment bankers. Make your own assessment.

GMR,GVK AND LANCO ARE FLYING TOGHETHER

GMR, GVK Power & Infra and Lanco Infrastructures have many things in common. The promoters of all the three are from Andhra Pradesh.  The three are into power / infra business. All the three stocks trading at 5 year lows. The three firms have huge debt on their books.  All the three have highly leveraged balance sheet.The three are potential CDR candidates. All the three have been reporting slow earning growth in the past 2/3 years.  The closing share prices of these companies on Thursday are, GMR (Rs21), GVK (Rs 9) and Lanco (Rs 10). They all have face value of Rs 1. The three have not declared any dividends in the last 4 years. KARVY is the registrar for all the three. Most brokerage houses have come with the avoid report on these three stocks. No wonder these three stocks are flying together.

WE SAW SKS MICRO GOING BUST IN 2010.

At the time going public in 2010, SKS Micro was hailed as the next Infosys, TCS. It had the backing of biggest investment banks, brokerage houses, mutual funds, rating agencies. Even Narayan Murthy of Infosys saw a great future for the company and his venture capital outfit invested in the shares of the company at Rs 300, just before the company went public. The company came IPO at Rs 985. The issue was oversubscribed more than 10 times. Many thought another Infosys has really born.  We at first choice did not agree with it. We had predicted in 2010 that SKS is pursuing unsustainable and unethical business model, which will not lost long.  Here are the 10 reasons, among others, we saw at the time of  SKS Micro going public in Aug 2010, that will make the scrip tumble.



1. Unethical business: The Company was charging high interest on money lent to the poor and down trodden. 


2. Unsustainable business model: The business model will not sustain in the long -run.


3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year. 


4. Look at the salary of top executives :

Suresh Gurumani - Managing Director of the Company.        The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.

Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a. The irony is they are trying to eradicate poverty.

5. Mohd. Yunus says - “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,”


6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.

7. Government /RBI will not be mute spectators to the exploitation. They are bound to regulate the segment. This will make the business un- attractive.

8. Financial inclusion initiatives taken by the public sector banks will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.


9. The average cost of acquisition of shares by promoters is less than Rs 50/-The Company has limited period of history and has no dividend payment record. 

10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.

Search this blog for other news / views on sks micro.

OPAL LUXURY FAILS RETAIL TEST

OPAL Luxury, NSE SME IPO, has managed to get one time subscription on the last day. However the IPO has failed the retail test. As against 3.32 lacs reserved for retail category, the issue received bids only for 1.43 lacs shares.

SUDAR INDUSTRIES MAY TRADE BELOW ITS FACE VALUE

Sudar Industries (formerly Sudar Garments) came public at Rs 77 about the same time two years ago. The shares are traded now at Rs 27 and may come down below its face value. We had advised to stay way from the IPO. Read why.

The funding requirements and deployment of the issue proceeds are based on management estimates and have not been independently appraised by any bank or financial institution.  Fully equity funded expansion without any contribution from the promoters.       

The company was yet to place orders aggregating to Rs 14.00 Cr for entire plant and machinery.

The average cost of acquisition of Equity Shares Murugan Muthiah Thevar is Rs.14.72 per Equity Share. 

IPO grade 1 by CRISIL indicating below average fundamentals.

According to CRISIL, the assigned grade is constrained by Sudar’s weak corporate governance practices. One of the independent directors is closely involved in business activities and is known to influence the promoter’s business and financial decisions. 
Other independent directors do not have sufficient understanding of their role and lack

the ability to exercise management oversight. CRISIL believes this will limit the independent directors’ ability to act in the best interest of minority shareholders.  Also, the company does not have a strong second line of management to match the growing business. While the company has taken steps to strengthen its team, the efficacy of the same will be seen only over the medium term. 

The grade is further impacted by a weak business risk profile due to the company’s limited experience in retail business, the absence of long-term contracts and high dependence on few buyers for a bulk of its revenues.

VALUATION AND RECOMMENDATIONS

At Rs 72-77, the company is demanding a valuation of 24x on its FY11 earnings, on the post issue capital of Rs 18.54cr, which is very expensive. Well established companies in the segment, like Kewal Kiran Clothing, Mandhana Industries are trading around 12 PE.  

More over garment manufacturing is highly competitive sector with not so attractive margins. 

The company’s margin which was around 3% in the year 2009 has jumped to 8% in the year 2010. This kind of improvement in margins, before the IPO has to be taken with a pinch of salt.    

AVOID SUBSCRIPTION.

READ WHY TAKSHEEL IS TRADING AT RS 6

Taksheel Solutions came IPO at Rs 150, in October 2011. We had advised the investors to stay away from the IPO,  although it was from the  booming  I T sector. Read why.

Echoing integrity, this is the company’s logo /slogan. The dictionary meaning of integrity is - the quality of being honest and having strong moral principles. Looking at how the company has been managed all these years indicates that the company neither is honest nor have any moral principles. Taksheel is in the business of providing solutions. However the Taksheel has miserably failed in finding solutions to comply with the statutory obligations.

The lists of non compliance are:

Non-compliance and/or late compliance with the regulations pertaining to certain mandatory requirements under the relevant regulations of FEMA in relation issue of shares to foreign entity by way of share swap.

Late Compliance and/or Non-compliance by the Promoters with the relevant regulations pertaining to certain mandatory requirements under the regulations of FEMA in respect of certain filings for investment in overseas subsidiary.

Non-compliance and/or late compliance with the regulations pertaining to certain mandatory requirements under the relevant regulations of FEMA for capitalization of export receivables.

Non-compliance and/or late compliance with the regulations pertaining to certain mandatory requirements under the relevant regulations of FEMA for investment by the erstwhile over seas borrowings.

Non-compliance with the regulations pertaining to obtaining prior approval of FIPB in relation to issue of shares to Lexicon Private Limited.

Non-compliance with the regulations pertaining to obtaining prior approval of RBI for disinvestment of the shareholding in IBSS Inc.

Non-compliance with the regulations pertaining to obtaining prior approval of FIBP in relation to transfer of shares by Mr. Pavan Kuchana (then an NRI) to Lexicon Private Limited.

Non-compliance with the regulations pertaining to obtaining prior approval of FIBP in relation to transfer of shares by IBSS Inc (then an NRI) to Lexicon Private Limited.

Statutory dues: As on date of DRHP following are the statutory dues which are due for more than six months and had not been paid by the company and it includes the outstanding statutory liabilities of foreign branch amounting to Rs. 5.18 lacs.

RISKS

• Taksheel is exposed to concentration risk in terms of geography and number of clients. Company caters to clients based only in United States of America and top 10 clients contributed about 85% of the sales during FY 11.
•  As on March 31, 2011, Company had a resource base of 40 employees, which is relative low as company outsourced all on-site jobs to third parties.
•  The company had negative cash flow in the last 5 years.
•  Auditors have qualified on certain matters in the previous years.

No wonder the shares are trading around Rs 6.

OPAL LUXURY TIME PRODUCTS IPO CLOSES TODAY - AVOID

Opal Luxury Time Products IPO, which has received 59% subscription so far closes today. Avoid the IPO.

ONE LIFE, HAS NO LIFE, READ WHY IT WILL FALL TO RS 5 LEVEL.

We hereby reproduce the analysis made by First Choice IPO when the company went public in 2011.

The company has all the DNA of loot-maar.  Read the analysis:

The company has a corporate office in Mumbai and the current employee strength is eleven. It has no branches as on date.

OCAL started its operations in FY2010, Income from operations consists principally of income from investment banking and related services, which includes fee-based income from merchant banking, corporate advisory (including research services), debt syndication services and professional fees. In FY10, the company earned a total income of Rs.61.7 lakh comprising professional fees and consultancy charges.

OCAL had provided advisory services to a company in FY10 and is yet to receive payment for these services. Out of the total debtors of Rs.56.7 lakh, 80% are outstanding for more than six months.

CARE views on Industry Outlook:

A transparent, efficient and well developed stock market facilitates investment and economic growth and is an important factor in development of financial markets like India. India’s stock market has evolved over the years and has seen structural reforms in system as well as regulation and supervision in recent times, particularly after the establishment of Securities Exchange Board of India (SEBI) as the market regulator.Stringent regulations put forth by SEBI periodically and improving technology led to well regulated highly systems enabled capital market in India. System based trading and settlement has helped market-determined prices and allocation of resources, screen-based nation-wide trading. Presently, there are 22 recognized stock exchanges in India and the stock markets now have various players including mutual funds, FIIs, hedge funds, corporate and other institutions and retail public. OCAL’s performance is dependent on performance of the domestic and global financial markets.

MATTERS OF GRAVE CONCERN:

1. One of the promoter group entities ‘Sai Broking’ has been issued two show cause notices by SEBI for violation of provisions and for unfair trade practices.

2. The company is loss making and has negative cash flow from the operations.

3. Limited track record, moderate management profile, lack of diversified revenue streams, lack of branch network, highly competitive merchant banking business, high dependence on capital markets which exposes OCAL’s business to volatility in stock market which may impact its revenues and profitability.

VALUATION AND RECOMMENDATIONS:

The company reported losses for FY11. The profit reported in FY10 is not be taken at face value since the debtors are yet to be realized. One of the poorest quality IPO to hit the market in FY 11.

Onelife has managed one IPO this year – Paramount Print Packaging. As against the IPO price of Rs 35, the shares trading at Rs 21.

The BRLM to the issue, Artherstone had earlier managed the IPO of Midfield Ind. The shares are now trading at Rs 40, as against the issue price of Rs 133.

A MUST AVOID IPO. FAIR VALUE Rs 5.

READ WHY AANJENEYA LIFE CARE IS FALLING.

While analyzing the IPO last year we had highlighted the poor corporate governance. For the same reason the stock is having free fall. Read other concerns:

1. The Company earlier had not complied with Section 383(A) of the Companies Act, regarding the appointment of whole time company secretary.

2. Trading of the securities of the corporate promoter, Aasda Life Care Limited has been suspended by the Delhi Stock Exchange. 

3. The Company has  Working Capital arrangement with State Bank of India and The Shamrao Vithal Co-operative Bank Limited. Subsequently,  Corporation Bank and IDBI Bank were inducted as members of the Consortium. Thereafter the Company availed credit facility from Allahabad Bank without obtaining consent of the banks in the consortium, in contravention of the Working Capital Consortium Agreement.

4. The Company proposes to venture into manufacturing of new therapeutic segments such as anti cancer APIs, and niche APIs including narcotic APIs and its intermediates. These are new segments  and the company do not have any firm commitments / orders for the products to be manufactured.

5. Dependence on very few customers for revenue generation.

6. The company operates in a competitive business environment, both globally and domestically. Competition from existing  players  and  new  entrants  and  consequent  pricing  pressures will  adversely  affect  the business.

7. The  pharmaceutical  industry  is  highly  regulated  and  the  success  of  the company’s  strategy  of entering regulated markets  is dependent on a number of factors beyond  the control of the company.

VALUATION AND RECOMMENDATIONS:

The company achieved a turn over of Rs 169cr and PAT of Rs 15cr for the FY10. And for the 10 months period upto 31-01-11, the figures are Rs 293cr and Rs 31cr respectively. For FY11, on the post issue equity of Rs 12.58cr, the EPS would be around Rs 30. At Rs 228 – 240, the IPO is reasonably priced, if one looks only at the financials. But there are many issues that make the IPO unattractive - The company had negative cash flow from the inception till Jan -31-11, which is disturbing. There are corporate governance issues and lack of transparency in doing business. CRISIL IPO grade 1 and CRISIL had expressed its concern over the valuation of FCL. Lack of confidence of the company’s bankers. The recently listed IPO in the segment – Parabolic Drugs is quoting at Rs 45 as against the issue price of Rs 75.

AVOID THE IPO.

IPO ANALYSIS: SAMRUDDHI REALTY LIMITED – AVOID

ISSUE OPENS / CLOSES ON	28-03 /03-04-2013
ISSUE SIZE	PUBLIC ISSUE OF 21,70,000 EQUITY SHARES OF FACE VALUE OF RS10
PROMOTERS	Manjunath Vellore Ramakrishnan,  Hemang Dipakkumar Rawal and  Ravindra Mallikarjunappa Madhudi
PRICE BAND	RS 12 (FIXED)
IPO GRADING	NA
BRLM	Hem Securities Limited
REGISTRAR	Sharex Dynamic
LISTING	BSE  - SME

IPO ANALYSIS: ASHAPURA INTIMATES FASHION – INTIMATE ROBBING - AVOID

ISSUE OPENS / CLOSES ON	28-03 / 04 Apr 2013
ISSUE SIZE	PUBLIC ISSUE OF 52,50,000 EQUITY SHARES OF ` 10 EACH
PROMOTER	HARSHAD H. THAKKAR
PRICE BAND	RS 40 (FIXED)
IPO GRADING	SME IPO Grade 4 BY CARE
BRLM	KJMC CORPORATE ADVISORS
REGISTRAR	LINK INTIME INDIA
LISTING	BSE

BUSINESS

Ashapura Intimates Fashion is in to the business of designing, branding, marketing and retailing intimate garments such as loungewear, bridal night wear, honeymoon sets, bathrobes and night wear.

FINANCIALS

For the year ended March 31, 2012, the company reported net sales of Rs 101Cr and net profit after tax of Rs 3.41Cr, as compared to net sales of ` 51Cr and net profit after tax of Rs 1.39Cr for the year ended March 31, 2011.

MATTERS OF CONCERN

• There is litigation related to tax matters, which is pending before the Income Tax authorities.
•  Company procures non-branded intimate garments from various vendors including its associate concern. The said associate concern does not have approval/license under the Factories Act, since inception.
•  The Company has not obtained statutory approvals under the Factories Act for carrying on manufacturing activities since inception. The company has now applied for the registration required under the Factories Act.
• Ashapura has entered in to related party transactions in the past.
• Till the company thought of going public they were not aware of ESI Act and EPF Act.
• The company hires contract labour. However the Company is not registered under the Contract Labour (Regulation and Abolition) Act.
• Ashapura had experienced negative cash flows in prior periods.
• Company has not been making the required filings with the Registrar of Companies in a timely manner.

RECOMMENDATIONS

Another loot-maar category IPO.  Avoid.

BRICS BANK MAY BE HEAD QUARTERED IN CHINA

BRICS countries have agreed in principle to set up a development bank that would rival Western-backed institutions. BRICS refers to Brazil, Russia, India, China and South Africa.

The bank is likely to focus on infrastructure financing, a direct challenge to seven decades of dominance by the World Bank and likely to be head quartered in China.

It is the first time since the inaugural BRICS summit four years ago that the group matches rhetorical demands for a more equitable global order with concrete steps.

Together the BRICS account for 25% of global gross domestic product.

IPO LISTING NEWS: REPCO HOME FINANCE TO LIST ON 01-04-2013

REPCO Home Finance IPO is likely to list on 01-04-2013. The IPO received poor response from the retail investors, was ultimately bailed out by DIIs. We expect the IPO to list at discount to issue price.

INFOSYS FY 13 RESULTS ON 12-04-2013.

MARKETS TO SNAP LOSING STREAK

Benchmark indices Sensex and NIFTY, yesterday, closed a tad lower. In the last 11 trading sessions markets have closed in red in 10 trading sessions, due to negative news flows. First, the on going crisis in euro zone, then Central Bank's policy announcements, DMK withdrawal from UPA, turmoil in Cyprus and the latest the threat of Mulayam withdrawing support to UPA and formation of the so called 'third front'. Indecisiveness of policy makers, regulators and pangs of coalition governments always work in favor of the bears. Indian markets have under performed compared to the world markets this year is a testimony for this. Inspite of favorable Cyprus deal, market across the world yesterday closed in the negative territory. We expect the market to open weak and close in the green, ahead of futures and options expiry on Thursday.

TCS GETS RS 233CR NORWAY CONTRACT

TCS has been awarded contracts worth Rs 233 crore from Norway Post to operate and manage its applications.

FORTHCOMING IPO - JYOTI CNC

NAME OF THE COMPANY	JYOTI CNC AUTOMATION
ISSUE SIZE	PUBLIC ISSUE OF 13,384,826 EQUITY SHARES OF FACE VALUE OF 10 EACH
PROMOTERS	PARAKRAMSINH JADEJA, VIKRAMSINH RANA, SAHDEVSINH JADEJA AND JYOTI INTERNATIONAL
BRLMs	AVENDUS CAPITAL,SBI CAPS
REGISTRAR	LINK INTIME INDIA
LISTING	BSE / NSE

RIL, SBI, TCS AND BAJAJ AUTO TO SIZZLE TODAY / TOMORROW

IPO ANALYSIS: OPAL LUXURY TIME PRODUCTS -AVOID

ISSUE DETAILS:

ISSUE OPENS/ CLOSES ON	25-03 /28-03-2013
ISSUE SIZE	RS 13CR
PRICE BAND	RS 130-135
IPO GRADE	SME GRADE 4 BY CRISIL
BRLM	IDBI CAPITAL MARKETS
REGISTRAR	KARVY
LISTING	SME-NSE

BUSINESS

OPAL is in to premium home décor products manufacturing and marketing. Currently Opal designs and manufactures wall and table clocks and markets them under two brands- ‘Opal’ and ‘Caliber’.

MATTERS OF CONCERN:

1. The Company in the past entered into related party transactions.

2. As of now there is liquidity crunch in the company.

3. Working capital cycle is high at ~200 days; debtors too are on a higher side.

4. Opal has delayed income tax payment during FY09-FY12; it has not paid the advance taxes. It has paid ₹2.0 mn as interest for late payment of tax over FY09-12.

5. Opal does not maintain monthly/ periodical MIS that captures the key operating metrics, profitability and key balance sheet numbers, which could make it difficult to monitor operations centrally with increasing scale.

6. Opal is able to maintain margins because of income tax benefits available in Roorkee, where the manufacturing unit is located.

7. Objects of the Issue for which funds are being raised have not been appraised by any bank.

8. The average cost of acquisition of shares by promoters is less than its face value.

FINANCIALS: 

Total income earned for the year 2011 and 2012 are Rs 16.91Cr and Rs 17.30Cr. The net profit for the same period stood at Rs 2.24Cr and Rs 2.89Cr respectively.  For the half year ended 30-Sept 2012, the figures were Rs 9.62Cr and Rs 1.37Cr.

TRACK RECORD OF BRLM – IDBI CAPITLA MARKETS

NAME OF THE COMPANY	IPO PRICE	CMP	GAIN /LOSS (%)
PC JEWELLER	135	107	- 21.00
CARE	750	771	+  2.23
THEJO	407	27	- 93.00
NBCC	106	115	+  8.49
SRS	58	38	-35.00
AANJENEYA	234	154	-34.15
MOIL	375	220	- 41.45
GUJRAT PIPAV	46	49	+ 6.00

VALUATION AND RECOMMENDATIONS

The company post IPO will have equity of Rs 3.35Cr. For FY 14 the company may post an EPS of Rs 10. The asking PE for a small time and not so professionally managed company is around 13, which is on the high side. It appears the IPO has been planned to meet the liquidity crunch the company is facing.  AVOID THE IPO.